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Interest rates tipped to fall as the Reserve Bank looks to reignite a faltering economy

Tuesday, October 2, 2012 - 14:28

INTEREST rates are tipped to fall today as the Reserve Bank looks to reignite a faltering economy, delivering homeowners a potential $50 drop in the average monthly mortgage repayments.

Concerns about slowing retail sales as China weakens has hardened some economists' forecasts that the RBA needs to cut rates quickly rather than wait for the Melbourne Cup Day board meeting.

The prospect of a rate cut was also boosted with another low inflation reading yesterday giving the central bank the scope to cut the interest rate.

The Australian Retailers Association yesterday warned the RBA's decision on rates will "make-or-break" Christmas trading as households struggle with rising utility prices.

"Over the last few months the economic ducks have lined up for a drop in interest rates," ARA executive director Russell Zimmerman said.

"The Australian dollar is relatively stable, inflation is at bay and retail is struggling - which is a sign consumers are unable to stimulate the economy through their spending."

But fears are growing among analysts the big banks may not pass on any drop in the cash rate in full to struggling homeowners.

The expected 25-point reduction in the official cash rate today to 3.25 per cent would deliver almost $50 savings on monthly repayments on a $300,000 loan.

ANZ's head of Australian economics Ivan Colhoun said the RBA was likely to cut rates at its next two meetings - starting today - in a bid to boost growth.

The most bullish of the major banks, Westpac, is tipping at least another 75 points in rate cuts will be needed by March next year to revitalise the non-mining sectors of the economy.

This would reduce interest rates to 2.75 per cent - lower than during the worst of the global financial crisis

Herald Sun, October 2012